Hewitt Associates is warning defined contribution (DC) plan investors to avoid long-term bonds due to a pending reversal in interest rates.

The company’s latest InVision survey of Irish pension fund performance over the second quarter of 2010 explains how the long-term secular downtrend in interest rates is reversing, which will make fixed income investing problematic over the next few years.

For DC investors still attracted to the volatility-dampening characteristics of bonds, focusing on the shorter end of the yield curve—investing for five years instead of 10 or 30—is a good bet, says Hewitt. However, for defined benefit plans, it makes sense to invest in long-dated bonds in order to match the liability profile of the plan. Such plans should opt for an active manager rather than a passive bond manager tied to tracking an index.

The report also suggests that investors consider multi-asset funds in favour of traditional products.

Read the report here.